Just over the tech horizon

Bank tech trends can make your head spin. So regularly longtime Tech Exchange Editor John Ginovsky does his best to “make sense of it all.”

‘Tis the season to start making predictions about banking-related technology issues likely to make an impact in 2018.

We don’t know what’s on your holiday list, but one thing to be aware of is how quickly today’s hot tech toy goes out of date. Frankly, it used to take years for any new technology to really take hold, but with the fevered acceleration of research, development, and implementation these days, there likely will be yet another one of these tech trends pieces to come by, say, June.

Currently in the technobrew are predictions ranging from open banking to correspondent banking to blockchain to social payments to ransomware to offshoring fintech to data management.

Truly, Rip Van Winkle, if he was a banker and was just now waking up after a 20-year nap, would think everybody was speaking a foreign language.

So here goes. Deck the halls with boughs of prognostication.

Open banking—In a global study Accenture found that all but one of 100 payments executives at large banks said their bank plans to make major investments in open banking initiatives by 2020.

They define open banking as an emerging service model that allows customers to share access to their financial data with nonbank third parties, which can then use that data to provide the customer with a better banking experience.

It found that 63% of banks in North America believe that implementing open banking is critical to competing with new entrants, such as fintechs and tech giants, and will help banks remain relevant. [Read an in-depth interview with Alan McIntyre of Accenture, “What will U.S. open banking look like?”]

Correspondent banking—BNY Mellon issued a research paper that reveals that banks are cautiously optimistic that emerging technologies can help transform the global payments experience, with real-time payment systems viewed as having the greatest promise to substantially change the correspondent banking model.

Other findings of its survey include: About 25% of respondents agree that blockchain technology will substantially change the global payments experience; 60% say it is too early to tell if peer-to-peer system interaction, through the use of APIs, would bring a fundamental shift in the interbank correspondent model; and 25% feel compliance screening is the largest impediment to straight-through processing success.

“Increased regulation and competition is helping to drive innovation and change in the bank payment space that we have not seen for decades,” says Mike Bellacosa, head of Global Payments Product Management, BNY Mellon Treasury Services. “But with the coming of age of millennials and their higher levels of both technology understanding and technology expectations, we are now hearing a real rallying cry for change.”

Crypotocurrencies—Speaking of blockchain, Gartner, amid a number of technology predictions, says that by the end of 2020, the banking industry will derive $1 billion in business value from the use of blockchain-based cryptocurrencies.

“Once banks start to see cryptocurrencies and digital assets in the same context as more traditional financial instruments, more distributed business value will begin to accrue,” the Gartner report says. “This requires every industry to rethink aspects of current fiat-based business models such as pricing of goods and services, accounting and tax methods, payment systems, and risk management capabilities to accommodate these new forms of value in their business strategies.”

Fintech investment—KPMG’s latest quarterly global fintech funding report shows investment continuing to be strong, with $8.2 billion invested in the third quarter. Of this, $5 billion was deployed in the U.S., across 142 deals.

Looking forward, says Ian Pollari, global co-lead, KPMG Fintech, “The fintech market continues to rapidly evolve with an increasing diversity of funding participation and sources, geographic spread, and areas of interest. We are seeing the emergence of fintech leaders who are looking to expand internationally to scale their platforms, as well as large technology giants, moving into adjacencies to create new value for their customers. This is a trend that is expected to continue and could force incumbent financial institutions to take bolder steps in response.”

Marketing—Forrester surveyed global business-to-consumer marketing decision makers who own their brands’ loyalty strategy and found that many want to mature and expand their approach to customer loyalty beyond just points, discounts, and incentives.

Engagement, retention, and acquisition are the top business objectives for customer loyalty initiatives, according to the survey. However, 80% of marketers are planning to spend more on customer experience improvements, while 65% are planning to spend more on experimenting with innovative engagement strategies. This indicates their continued focus on expanding loyalty strategies beyond material value propositions.

Social Payments—A Juniper Research survey indicates that Apple, Facebook, and Google will bring social payments to the masses.

Says its report: “The advanced nature of social media and messaging apps has revolutionized the way consumers bank, especially for making payments. The availability of payment mechanisms such as Apple Pay, Android Pay, Samsung Pay, PayPal, Union Pay, etc., means that mobile users are becoming more trusting of these players when it comes to their finance.”

Its prediction: “In 2018, consumers will continue to have a greater array of payment products, as a wealth of companies seek to take advantage of technology and regulatory changes, in addition to increased competition from digital-only service providers offering no, to lower, transaction fees.”

In 2017, ransomware damage costs are predicted to exceed $5 billion, up from $325 million in 2015, and likely will only get worse.

Adding to the insidiousness of this crime, employees have been shown to pay ransoms out of their own pockets, despite extensive educational efforts, likely due to a misplaced feeling of guilt and shame. Of those who suffered a ransomware attack at work, 59% said they paid personally, while 37% of their employers paid.

“Even in the face of increasing attacks, there are large gaps in overall awareness of how to handle a ransomware strike,” says Jonathan Levine, chief technology officer at Intermedia. “Employees are willing to go to great lengths to try to get data back, including paying ransoms out of their own pockets, even though 19% of the time the data isn’t released even after the ransom is paid. Organizations need to focus education efforts not just on what ransomware is, but what steps employees should take if they are impacted.”

Briefly, these steps include closing an attacked computer and getting it off the network as soon as possible, and using a continuous backup system for data.

Data management—Infogix, a software provider, has an extensive list of data trends that will be pivotal in 2018.

• Data governance will become more important. Better capabilities will provide better transparency into a business’s data landscape, allowing it to combat increasingly complex regulatory and compliance demands and the shifting tides of business policies and business alignment.

• The role of the chief data officer will become more important. A “CDO” helps businesses manage unstructured and unpredictable data, while successfully leveraging advanced analytics and maximizing the value of data assets across the business enterprise.

• Metadata management will proliferate. Such data about data can help organizations understand the relationship between data sets, as well as enhance discoverability in metadata.

All this is to come. It is enough to make old Rip Van Winkle take another nap.

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected]